Decapitalisation Rate for the 2026 Revaluation: business regulatory impact assessment

Section 3: Costs, impacts and benefits

Quantified costs to businesses

Options 1 – 3

If the setting of decapitalisation rates causes the RV of properties valued using the Contractor’s method to increase in aggregate relative to those valued using other methods (in other words the share of Contractor’s method RV increasing relative to non-Contractor’s method RV), for a given poundage, this means the gross tax (before the value of reliefs are taken into account) burden on Contractor’s method properties will increase – and therefore that the share of gross tax burden on non-Contractors’ method properties will decrease (benefitting them in aggregate).

Conversely, if this causes the RV of properties valued using the Contractor’s method to decrease in aggregate relative to those valued using other methods (in other words the share of Contractor’s method RV decreasing relative to non-Contractor’s method RV), for a given poundage, this means, for given non-domestic rates, the gross tax (before the value of reliefs are taken into account) burden on Contractor’s method properties will increase as a proportion of the total.

Option 4 – Do not prescribe the rates in statute

As noted previously, if all else were equal, properties that see their RV decrease as a result of this would benefit and those that see it increase would incur a cost via their rates liability.

All respondents to the consultation in advance of the 2023 revaluation supported the proposal that the Scottish Government should continue to prescribe the decapitalisation rates on the basis it would provide certainty for assessors and ratepayers, and a greater degree of certainty in financial planning for taxpayers.

Failure to prescribe the rates in the past led to appeals that could take considerable time and expense to resolve.

Option 5 - Change the number of categories with different rates and/or their make-up

As noted previously, if all else were equal, properties that see their RV decrease as a result of this would benefit and those that see it increase would incur a cost.

There were mixed views expressed in the consultation responses about the benefits of changing the categories. One respondent for instance suggested that as their borrowing is at a similar rate to that provided to other public sector providers within health, education, etc. rather than the commercial rate, their properties should be valued using the lower decapitalisation rate, while another noted that they “would prefer to see the properties subject to one rate or the other defined for generically. In our opinion not-for-profit institutions and those which rely on public or private charitable funding should benefit from the lower decapitalisation rate, and ‘commercial’ operations pay the higher rate. Each ratepayer would then be able to claim the benefit of the lower rate if they fulfil the stated criteria.”

Table 1 shows the premises valued under the Contractor’s method as at April 2025*.

Estimates are exclusive of a small amount of RV that is valued under hybrid methods, where part of the RV is valued under the Contractor’s Basis and part using another method.

Tables 2, 3.1, 3.2, 4.1, and 4.2 show the estimated impact, based on preliminary data provided by Scottish assessors on expected changes in the capital values of properties valued using the Contractor’s method.

*The ‘Other’ category includes a range of around 1,200 diverse properties. The Assessors were able to provide estimates of changes to capital values for properties in this category accounting for £34 million of the £52 million total rateable value in 2025. For the remaining properties in this category, capital value was assumed to change in line with other properties valued using the Contractor’s Basis method.

It is estimated that Option 1 would lead to an increase in the RV of properties valued using the Contractor’s method of 12% at the next revaluation, Option 2 would lead to an estimated increase of 56%; and Option 3 to an increase of 3%.

Other impacts

There are no other expected impacts for businesses whose properties are valued using the Contractor’s method.

Scottish firms’ international competitiveness

The proposed policy is not expected to have an impact on Scottish businesses’ ability to compete internationally, or Scotland’s attractiveness as a destination for global capital investment, beyond the impact on rates liabilities as set out in the ‘Quantified costs to businesses’ section above.

Benefits to business

Maintaining the decapitalisation rates (Option 1) will benefit business valued under the Contractor’s method relative to Option 3 (increase the rates) in the form of lower rates liabilities. Further, prescribing decapitalisation rates offers certainty to business – prior to rates being prescribed, the rates were the object of appeals that could take considerable time and expense to resolve.

Small business impacts

The decapitalisation rates are set to keep the balance of tax burden stable and to avoid shifting costs from any one type of business to another, so no particular impact is expected on small businesses.

Properties valued using the contractors basis have a median rateable value more than double that of properties valued using comparative methods. This implies that they are less likely to be small businesses.

Investment

Given the rates are remaining the same, the proposed policy is expected to have a nil or close to nil impact on Scotland’s attractiveness as a place for global investment.

Workforce and Fair Work

The proposed policy is not related to workforce or fair work.

Climate change/Circular Economy

The proposed policy is not related to climate change/circular economy.

Competition Assessment

The proposed policy is not expected to have an impact on competition.

Consumer Duty

Non-domestic rates are a property tax, not a tax on consumers.